Ultimately this is up to the landlord, who can ask you to move once your lease expires and can also terminate your lease early for a number of reasons.

Essentially the home is never really yours.

For instance when you rent, your property manager and landlord can come into your property at any time, as long as they provide sufficient notice and have good reason, such as regular inspections which can happen as frequently as every two or three months.

You also cannot make any changes to the property to improve your living space or even put pictures up on the wall without the landlord’s permission.

The other consideration as a tenant is the rising cost of renting.

Even though renting may currently be the cheaper option, rents will always continue to rise in line with the increasing values of properties.

Further, you never stop paying rent, whereas most people will pay off their mortgage within 25 to 30 years.

When you buy a home however, you have a certain sense of stability.

You choose how long you wish to live there (as long as you make your repayments!) and can make improvements to your living space and potentially add value while doing so; creating a wonderful thing called equity (the value of your home minus the amount you owe the banks = your equity).

Consider becoming a renting investor

Over the years I’ve noticed a growing trend amongst young buyers who choose to get into the property market by continuing to live in rental accommodation and purchasing an investment property before buying a home.

They do this for a number of reasons:

– Home ownership in the lifestyle suburbs they desire is too expensive, so they rent in beachside or inner suburbs where there’s a café culture, restaurants, nightlife, entertainment, recreational facilities and easy access to work and instead buy an investment property where they can afford to.

– They’re living at home rent free with their parents, enabling them to save and get a foot in the door of the real estate market.

– Their lifestyles are still transient, they’re still planning to travel or they’re not sure where they’ll settle, so it doesn’t make sense to plant their roots in property yet.

Ahmad is Director of Metropole Properties Sydney and a highly skilled wealth strategist. He is a passionate property investor, has a degree in Commerce, is a licensed estate agent and qualified property investment advisor and has personally coached and educated hundreds of clients to create wealth through property. Visit www.SydneyBuyersAgent.com.au

'Should I Rent Or Buy – which one puts you on top of the property ladder?' have 11 comments

I like that you mentioned that it may be less expensive to rent rather than buy in and near the city. I just got a job in a bigger city and I really like the idea of living in there with all the opportunities and things to do, but there’s no way I could afford to buy anything right now. Even with the rising rent, it seems like it would still be cheaper for me to rent than it is to buy.

I read all the comments on Renting and Buying. My theory is that, if your capital is earning you more than the rent you pay – after tax breaks on both income and the rent, then renting is preferable in the earlier years of life. Let your capital accumulate over years. It is a more ‘certain’ accumulation than hoped property appreciation. As age progresses and capital sum bulges and middle age approaches, you wish for stability (you have done all the moving around and pubbing at different suburbs, and the sorts), that is when acquiring your own home, would make more definite sense. However, if the property prices are galloping, which they were in the past two spikes in Australia, then the Hobson’s choice kicks in and financial reasoning should take over, rather than the emotional reasoning. It is a decision based more on an individual’s circumstances rather than just the market forces. Make an intelligent choice and you cannot go wrong !!

I am constantly amazed by the limited options presented [Rent and spend extra on lifestyle, Rent and invest in property and Mortgage]. I am also amazed by how many people think “rent is dead money” while the professionals state their are Pros and Cons for each and individuals need to examine their circumstances…

George Raptis’ point that you never stop paying rent is the most compelling to me… renters have to continue paying market rent rates even while living off their super and investment income in retirement.

Supposing a home owner pays off their property, retirement is markedly more comfortable. The sacrifice is not being able to afford to buy in the area that you want for the first home (but that is a short term I imagine as you move up the property ladder).

@ MATT. That’s why retirees move to country areas where both buying and renting a home are much cheaper than the cities! Whilst at the same time the cost of home ownership remain exactly the SAME as the city ! In some cases the cost of home ownership is almost the same as the rent one pays because the rents are so low – Take a look at Townsville where an investor is left with around $25pw after the usual expenses and that’s not factoring in repairs and maintenance! Definitely far more to rent there and not a bad place to retire either! And there is plenty more nice country towns like that all the way up and down the coast.

There are a few errors in your logic:
1. Yes interest rates were higher in the 80’s and 90’s because inflation was higher – the “real” interest rate was much the same, but since the middle 90’s the RBA has been mandated with keeping inflation between 2 and 3% and this means interest rates have remained much lower in the last 2 decades and will continue to do so.
2. You suggest the average price increase of homes over the “long term” is only 2%. If that were the case your argument may be correct. I’m not sure what you mean by the long term, but clealry capiatl city properties have grown much more than that.

The 2% figure is actually generous. Over the 20th century the real return above inflation has been approximately 0.7%. If you can get a hold of the research of Professor Robert Shiller at Yale you will be able to get more insight into this figure.

Just for interest have a look at this graph that Shiller produced in one of his papers. Keep in mind this is based on data in the US which doesn’t have the market distortions (i.e. tax breaks for negative gearing) Australia does…. We all know what happened after this boom don’t we

Interesting article… but how can you seriously calculate home ownership based on an average interest rate at 6.5% per annum? In 1990, interest rates were 16%! Also, everything doubles in value every 7 – 10 years??? In the long history of property, the average price increase is only 2%. Yes, recently there has been two very large peaks. However, one thing is for sure, it’s not stable and you have not actually made anything on your home UNTIL you sell it, only paid huge interest, council rates and repairs. Then if you do sell, there could be some large tax on that!

If you rent , why not save the difference of buying a similar home. Even if your savings stayed at a small $250/week for 25 years – at 5%, and you will have $645k. Or invest that difference in shares (at average of 10% return over long term) and you could have almost 1.5M. Oh, and you will also be able to live in a property that is worth much more than what you pay in rent… EG: For $700/week you could rent a 2br terrace in the inner city that is worth $1.5M… So, yes – you can’t knock down a wall, but it may be about lifestyle for some!

If you bought that place BTW, over 25 years you would have paid $1.6M in interest. The loan would cost you $2,300/week… If you could afford that, save $1,600/week over 25 years… and you would have 3.9M in 25 years. People often forget about the cost of interest and council rates… I bought my flat for $300k and sold it for $400k – I made $100k! (No you didn’t)…

@STUART. What a brilliant case for renting. Nobody ever looks at it that way. But that’s because nobody ever saves the difference like that either So good case in theory. Would never work out that way in practice. BTW. Going forward interest rates look more likely to remain at or below current levels in the long term because Central banks will just keep lowering rates. They have no other choice. So work on maybe 1-1.5% interest on your savings (if you are lucky) and 4-5% interest on your loan.

@ MICHAEL. “I suggest that we swap homes and rent off each other. I propose you pay me $500 a week rent and I’ll pay you the same, so we’re cash flow neutral (the rental income I receive covers my expense of renting).” Brilliant idea”

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PropertyUpdate.com.au is Australia's leading property investment wealth creation website with tips, advice and strategies from leading real estate investment experts. Featuring topics like property investment, property development (helping you understand the process), negative gearing and finance (so you can borrow more from the banks), property tax (allowing you to structure for legal tax deductions and asset protections), negotiation, property management (assisting landlords and tenants understand their right responsibilities), commercial property (for experienced property investment individuals), personal development and the psychology of property investment success.